Why Trump's Fed Pick Could Trigger Aggressive Rate Cuts

Markets are bracing for a hawkish Federal Reserve if President Trump’s nominee Kevin Warsh takes the helm, but one economist who correctly predicted Japan’s fiscal crisis sees the opposite scenario playing out.

Robin Brooks, a senior fellow at the Brookings Institution, argues that Warsh, contrary to popular belief, could slash interest rates hard and fast. In a recent analysis, Brooks forecasts 100 basis points of cuts spread across just four meetings in June, July, September, and October following Warsh's potential appointment.

This aggressive easing would far exceed the 40 basis points of cuts that markets are currently pricing in for that period. Such a move, Brooks notes, "could be portrayed as a reset of monetary policy to acknowledge a lower neutral rate... setting the stage for more dollar weakness."

If this forecast holds, the Fed’s benchmark rate would fall from its current 3.5%-3.75% range to 2.5%-2.75% before the November mid-term elections.

Markets React to Hawkish Fears

The anxiety surrounding a potential Warsh presidency is already rattling markets. Since the rumors began circulating late last week, a wave of risk aversion has swept through key asset classes.

• Bitcoin plunged from $84,500 to below $75,000 over the weekend.

• Gold and silver sank by 9% and 26%, respectively, on Friday.

• The dollar index rose as investors priced in a more restrictive Fed policy.

This reaction stems from Warsh’s history as a Fed governor, where he maintained a staunch anti-inflation stance during the 2008-09 crisis. Traders now fear he would resist lowering rates, setting up a conflict with a White House that has demanded aggressive cuts.

The Political Pressure Cooker

Brooks argues that politics is precisely why Warsh will pivot. President Trump repeatedly attacked current Fed Chair Jerome Powell—whose term ends in May—for not cutting rates to as low as 1%.

"Many came away from last week with the mistaken impression that Warsh will be hawkish. He can't and won't be," Brooks explained. "In fact, his worst nightmare is probably to have Trump turn on him like he did on Powell."

This suggests Warsh's primary motivation would be to avoid the public clashes that defined Powell's relationship with the White House.

Justifying the Pivot: AI and Productivity

To provide an economic rationale for lower rates, Warsh is expected to champion a narrative of high productivity and low inflation, driven by the artificial intelligence boom.

In a November 2025 Wall Street Journal op-ed, Warsh himself framed AI as a disinflationary force that boosts American competitiveness. "Productivity improvements should drive significant increases in real take-home wages," he wrote. "A one-percentage-point increase in annual productivity growth would double standards of living within a single generation."

This framework would give Warsh the cover needed to pursue a more accommodative policy. For markets, such a rapid shift toward rate cuts could reignite the bull run in Bitcoin and other risk assets, catching many investors by surprise.